OTTAWA, June 19 (Reuters) - Canada's annual inflation rate
in May edged up to 0.9 percent from 0.8 percent in April but was
still below the lower end of the Bank of Canada's 1 percent to 3
percent target range, Statistics Canada data indicated on
Friday.

Analysts had forecast that the annual rate would stay at 0.8
percent. The Bank of Canada says a slump in crude oil prices
will help depress the rate before it returns to 2.0 percent at
some point in 2016.

The central bank surprisingly cut rates in January to
provide what it called insurance against lower oil prices and
says the move has worked so far. The next scheduled rate
announcement is in July.

"We think the Bank of Canada are reasonably content to stay
on hold for now, barring another growth setback," said Bipan
Rai, director of foreign exchange strategy at CIBC World
Markets.

The annual inflation rate increased on the back of food
prices, which were 3.8 percent higher than in May 2014. The
energy index fell 11.8 percent in the 12 months to May,
following a 13.5 percent drop in April.

"May is a strong seasonal month for prices, so I wouldn't be
too swayed by those big monthly moves," said Doug Porter, chief
economist at BMO Capital markets.

Statscan said that excluding energy, the annual inflation
rate would have been 2.2 percent.

The core inflation rate, which strips out volatile items and
is closely watched by the Bank of Canada, dipped to 2.2 percent
in May from 2.3 percent in April, the second month in a row it
has dropped. Analysts had expected a core rate of 2.1 percent.
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